June 7 (Bloomberg) -- Ray Lane, former chairman of Hewlett-Packard Co. and partner emeritus at venture-capital firm Kleiner
Perkins Caufield & Byers, is in a dispute with the U.S. Internal
Revenue Service that has left him with a $100 million tax bill.

In December, the IRS found Lane, 66, participated in a
“sham” tax shelter, generating improperly claimed losses of
$251 million to offset income, according to appeal papers filed
May 6 in U.S. Tax Court in Washington. Lane argued that the IRS
was wrong to say that his partnership, Vanadium Partners Fund
LLC, lacked “legitimate business purpose.”

The Tax Court wrangling comes amid a series of career
setbacks for him. He stepped down as Hewlett-Packard’s chairman
in April after less than three years. Investors were dismayed
with his oversight of the computer maker’s $10.3 billion
purchase of software maker Autonomy Corp. The acquisition later
had to be written down.

“It’s a very difficult position to be in,” said Charles
Elson, director of the John L. Weinberg Center for Corporate
Governance at the University of Delaware. “As a director, you
are being elected for your judgment, and investors have to
evaluate how you apply that judgment. If you’re a public company
director, your entire financial life is fair game.”

Also in April, Lane scaled back his role at Kleiner
Perkins, becoming a partner emeritus. The following month, he
left the board of Fisker Automotive Inc., the struggling
electric luxury carmaker he backed while at Kleiner Perkins.

Turnaround Artist

Lane’s financial and professional woes add to challenges
for a onetime Silicon Valley high-flier who is credited with
orchestrating a turnaround at Redwood City, California-based
Oracle Corp., where he worked for much of the 1990s. He also
spent a dozen years helping pick startup investment targets for
Menlo Park, California-based Kleiner Perkins.

Lane, the former president of Oracle, walked away with more
than $1 billion in stock and stock options when he left the
company in mid-2000.

In a telephone interview, Lane said his advisers counseled
him in 2000 to invest $25 million of his own money in a fund
that backed technology startups and could be used to offset his
income.

“My tax advisers put me into an investment,” he said.
“Somewhere along the way I knew these things were being
questioned by the IRS.”

He said that he hasn’t discussed the tax matter with
Hewlett-Packard or Kleiner Perkins.

“The amount of taxes I pay are staggering, and this is the
only transaction I’ve been audited on,” Lane said. He said he
has paid between 32 percent and 38 percent of his income in net
taxes in the past 15 years.

IRS Settlement

Lane said he signed a settlement letter with the IRS in May
regarding the taxes he owes. Lane has the means to satisfy the
obligation, according to a person familiar with his finances,
who asked not to be identified because the matter is
confidential.

“This is a personal matter for Mr. Lane that does not
involve HP,” Henry Gomez, a spokesman for Palo Alto,
California-based Hewlett-Packard, said in an e-mailed statement.
“The company has no further comment.”

Lane remains a director on Hewlett-Packard’s board.

Christina Lee, a spokeswoman for Kleiner Perkins, declined
to comment. A representative of Fisker had no immediate comment.

Vanadium Fund

The petitioners in the Tax Court appeal are Vanadium and R.
Lane, described only as a partner in the company. The petition
doesn’t use Lane’s full name or home address, which can be found
in court papers in related cases.

In 2004, Lane was among petitioners who sought to keep
their names as tax-shelter clients private in a Justice
Department investigation of accounting firm BDO Seidman LLP,
court papers show.

The petition is among at least four cases filed in Tax
Court since May 2012 that challenge the IRS’s disallowing of
losses by Vanadium and related companies.

Lane is described in court filings as “an investor in an
abusive tax shelter” that generated tax losses to offset income
from unspecified stock options in 2000. Lane said his IRS
dispute is unrelated to options on Oracle shares.

The cases turn on investments made by Velocity Partners
Fund LLC, a company that was 99 percent owned by Lane, according
to an IRS filing.

Disguised Fees

Velocity made payments to other funds, including Veritas
Cambridge Fund LLC and Vector Calculus Fund, that were designed
to disguise fees paid to tax-shelter promoters and tax
professionals, the IRS said in court papers. Lane used a
strategy, dubbed POPS, to improperly claim the $250 million
“non-economic loss,” the IRS said. That loss pertains to the
2000 tax year, filings show.

POPS were part of a larger family of tax shelters popular
with investors in the late 1990s seeking to eliminate tax bills
on large capital gains. In general, the shelters involved
transactions that the government alleged had little economic
substance yet generated huge paper losses to offset taxable
profits. POPS, or Partnership Option Portfolio Securities, have
fallen out of use in the past decade because of various
government attacks.

Charles Hodges, an attorney who filed the Vanadium case,
said in papers filed at the Tax Court that the losses were
legitimate.

“No one told the investors that the monies lost somehow
represented disguised fees,” Hodges wrote.

In a telephone interview, Hodges said that Vanadium
Partners actually generated a profit and that the dispute
centers on the allocation of gains and losses to investors.

Tax Appeals

Lane’s settlement aside, appeals in the tax cases involving
him were filed because of deadlines for challenging IRS
decisions and because other investors have claims that may not
be resolved through negotiations, Hodges said.

Vanadium is no longer in operation, he said.

Lane grew up far from the pricey suburbs south of San
Francisco that he’s called home for decades. The son of an
engineer who designed rolling equipment for a steel mill, Lane
was born in McKeesport, Pennsylvania, a blue-collar town near
Pittsburgh, and educated at West Virginia University, where he
earned a math degree in 1968.

Lane owns two properties across the street from one
another, together worth about $30 million, in tony Atherton,
California, according to the person familiar with his finances.
He has a home in Manhattan Beach, California, worth about $20
million, and a farm in Oregon worth $4 million. Lane also owns
two properties in Palm Desert, California, worth a combined $10
million. Those two are for sale, this person said.

Carnegie Mellon

Before leaving Oracle, he purchased an automobile from the
company for $100,000, according to Oracle’s 2000 proxy.

He has made generous contributions to nonprofits, including
a $5 million donation in 2007 to Carnegie Mellon University,
where Lane heads the board of trustees. Lane also supported the
2010 run by Hewlett-Packard Chief Executive Officer Meg Whitman
for California governor, as well as other political campaigns.

Lane worked at International Business Machines Corp. for a
decade, then at Electronic Data Systems, running a small
division that provided services to manufacturing companies. He
later led Booz Allen Hamilton Inc.’s information-systems
consulting practice in Dallas.

His chance to amass wealth and become a multimillionaire
came in 1992, when he was recruited as an Oracle executive by
co-founder and CEO Larry Ellison, later rising to president and
chief operating officer of the world’s largest database-software
maker.

Ellison Wrangling

To lure Lane west from Texas, Ellison increased the number
of options he offered to 300,000 from 100,000, Lane told the San
Francisco Chronicle in 1997.

Lane helped tame Oracle’s sales culture, where staff were
rewarded for cutting deals yet had a reputation for neglecting
customers’ needs. He introduced rigor and built bridges to big
clients. Oracle posted a loss of $12 million on $1.03 billion in
revenue for fiscal 1991, the year before Lane arrived.

By 2000, the year Lane was forced out amid differences with
Ellison over strategy, Oracle’s profit had surged to $6.3
billion on $10.1 billion in sales.

Lower Visibility

As Ellison became more involved in Oracle’s day-to-day
operations and led its charge onto the Internet and away from
Lane’s focus on client-server software, Lane’s status and
visibility declined. Lane left abruptly at the end of June 2000.

In the months before his departure, Lane exercised options
on 4.04 million Oracle shares, valued at $230.7 million,
according to the company’s proxy statement dated Sept. 11, 2000.

He also had $729.2 million in unexercised options and other
equity-related compensation at the end of that fiscal year,
according to the filing. Adjusted for splits, the stock surged
more than 200-fold to $42.03 on June 30, 2000, from $0.19 at the
end of fiscal 1991.

Lane’s career since leaving Oracle has been marked by ups
and downs. He joined Kleiner Perkins shortly after leaving
Oracle, in the summer of 2000. During more than a dozen years
there, he backed 13 companies, according to Kleiner’s website.
Four went public or were acquired, according to the site.

Besides information-technology deals, Lane invested in
green technology companies, including Luca Technologies, Great
Point Energy and Acquion Energy. That field has been less
successful for Kleiner.

Narrow Majority

His tenure as Hewlett-Packard chairman was marked by
management tumult, strategy shifts and slowing growth that
dragged down shares and made it harder for CEO Whitman to
orchestrate a turnaround. He was re-elected as chairman in March
with only 59 percent of votes cast by shareholders, an unusually
narrow majority that set the stage for his departure as chairman
two weeks later.

Lane also got burned by Fisker. He put his own money into
the company, people familiar with the matter said.

Fisker, which made the Karma electric-hybrid luxury-sport
sedan that sold for more than $100,000, raised $1.2 billion in
venture capital, according to data compiled by Bloomberg. The
company was plagued by quality issues, an Energy Department loan
it couldn’t repay, the bankruptcy of its battery supplier and
the destruction of hundreds of Karmas in Hurricane Sandy.

Lane became a partner emeritus at Kleiner Perkins in April,
and he is not a participant in its most recent fund.